First Round Q1 LP Letter

First Round Capital shared their Q1 letter to their LPs end of June 2015. There are some good observations around unicorns and rising valuations.

They write that whilst they don’ have a crystal ball to predict future they do have a calculator. One humorous comment on whether in the proliferation of unicorns it will turn out who wears clothes is:

“beware of confusing donkeys in party hats for unicorns.”

They worry that valuations have increased too far being on average of 20% year on year for the past 10 years. This means that on the parity basis between 2007 and 2015, what would have been a 3X fund would now be a 1X fund assuming no increase in exit valuations. What this means is that the rules of the game changed, and it is hard to make money. Investors fundamentally need a way to compete because it is not likely that they simply become 3x better at stockpicking.

The critical thing that matters to them are only two numbers: entry price and exit price.